Endeavour all-share merger bid for Centamin flatly rejected by UK firm’s board

Sébastien de Montessus, former CEO, Endeavour Mining

ENDEAVOUR Mining has made public an offer to merge with Centamin, the single-asset  mining firm currently in search of a CEO – a proposal flatly rejected by the UK firm.

Shares in Centamin gained just over 8% in early London trade following Endeavour’s announcement today which was born of frustration following two attempts to engage with Centamin on a merger proposal in October 2018 and in November.

“Despite repeated good faith attempts to engage with Centamin, our efforts have been frustrated by their refusal to entertain any discussions about a merger before entering into a standstill agreement,” said Michael Beckett, chairman of Endeavour.

A standstill agreement would prevent Endeavour advancing the offer to Centamin’s shareholders in the event Centamin management – currently seeking a replacement to its CEO, Andrew Pardey, who resigned this year – rejected the merger.

By making the merger proposal public, Endeavour is hoping to force the issue, especially among Centamin’s shareholders which have had a tough time of things over the last 18 months following operational disappointments at Sukari, its Egypt-based gold mine.

Centamin, however, issued a statement saying that Endeavour’s offer favoured the Toronto firm’s shareholders. It said in a statement attributed to non-executive chairman, Josef El-Raghy, that it was “… better positioned to deliver shareholder returns than the combined entity,” adding that the board had “… unanimously rejected the proposal.

In terms of the merger proposal submitted by Endeavour, there is a 28-day period of “put up or shut up” in terms of UK Takeover Panel regulations. Thereafter, Endeavour may take the matter to a formal hostile takeover attempt.

In terms of Endeavour’s proposal, it will offer a 5% premium to the 30-day volume-weighted average prices of the Endeavour and Centamin representing a 13.1% premium to the closing price of Centamin as of Tuesday (December 2), equal to £1.48bn.

Chief among Endeavour’s approach is that Centamin would benefit from its multi-asset and geographic spread whereas Centamin is a single-asset company which is not currently seen as optimal among investors. The gold market has been transformed in the last year amid a flurry of combinations including that of Barrick with Randgold and Newmont with Goldcorp.

The move is a piece of legerdemain from Endeavour CEO, Sebastién de Montessus, who has recently said the company would focus on organic resource extension and greenfields exploration work rather than corporate activity, without ever completely dismissing it.

De Montessus said today that the company had embarked on a new growth strategy having reshaped its portfolio of assets.

“We believe that the Centamin’s shareholders are currently disadvantaged by the Sukari mine being managed within a single-asset portfolio, by the recent operational challenges and the ongoing leadership transition at Centamin,” said De Montessus.

Sukari has run into grade problems as Centamin attempted to access new areas of the mine, both open pit and underground.

The company reported in October third quarter production of 98,045 ounces from Sukari taking year-to-date output to 332,141 oz. Whilst this was in line with its plans, analysts were sceptical that restated full-year output of 490,000 oz would be achieved as it would need a 60% quarter-on-quarter lift.

2019 was the second year that Sukari has produced disappointing production numbers having paid out a handsome dividend for its 2017 financial year. The recent performance also seemed captured by the absence of Centamin’s outgoing CEO, Andrew Pardey, from the firm’s quarterly presentation.

The combined company would be the 12th largest gold producer with annual production of some 1.2 million oz, said Goldman Sachs in a report. Endeavour said it remained open to discuss the optimal structure for a potential merger which could including listing locations for the combined entity, said the bank.